A Look Back

Another decade came to a close last year. I thought it would be interesting to compare the last decade to the previous four decades. The table below shows returns for 5 primary asset classes and a globally balanced 60% stock/40% bond portfolio. For each decade the highest returning asset class is at the top while the lowest returning is at the bottom.

A few observations:

1. Stock returns across asset classes over the past 50 years are similar and close to the conventional 10% per year long term average. Bond returns are about 2% above the long- term average. Thus, a global mix of stocks and bonds returned an above average 9% per year over the 50-year period.
2. The variability in returns between decades was significant.
   1. US Large stocks were the best in the 90s and 10s but worst in the 00s. The opposite was true for International emerging markets stocks.
   2. Although International developed stocks were close to the best performer in the 70s and 80s, they’ve been the worst performer since then. This is primarily due to Japanese real estate bubble which burst in 1991.
   3. The 10s saw the worst return for bonds as interest rates ended their multi-decade decline.

Of course, what really matters is the returns over the coming decade. One thing is for sure. Bond returns will be much lower for the next decade and the impact on a global diversified portfolio will be significant. Also, it is likely high valuations in the US stock market and corresponding bargains in emerging markets will continue the flip flop pattern we’ve seen over the past decades. Finally, through the magic of diversification, a diversified global portfolio will provide a return somewhere in the middle with reduced risk.